Buy-to-let lender Bradford & Bingley lets shareholders down…again

03 June 2008 / by Rebecca Sargent

Bradford & Bingley let shareholders down for the second time yesterday with a move that has left the City stunned. The tenth biggest mortgage lender in the UK revoked its previously arranged rights issue in favour of a new cash raising plan that fails to recognise its shareholders' rights.

In its announcement yesterday, buy-to-let mortgage specialist Bradford & Bingley announced it would no longer be honouring the originally planned £300million rights issue that would have offered shareholders 'cut price' shares of 82p each.

At the time of the original arrangement on May 14, shares in the bank were worth just over 158p, making the 82p rights issue price seem attractive. However, Bradford & Bingley shares closed at 70.75p last night after a record low of 60p, making the 82p offer seem pointless.

And, as share prices collapsed, so did the original £300million rights issue that was fully underwritten by Citigroup and UBS, in favour of a 23 per cent stake sale to American private equity investor TPG Capital. The sale is set to raise £179million, and a further £257million is to be raised from existing shareholders at a share price of 55p each.

The move to sell 23 per cent of the company to TPG has outraged shareholders as they feel they should have been offered first refusal. However, Bradford & Bingley failed to consult them in the move that has raised speculation over the banks' financial stability.

This is not the first time the bank has let its shareholders down, just one month ago the bank falsely reassured them it would not be issuing a rights issue before making a swift u-turn just two weeks later.

In its statement yesterday, mortgage specialist Bradford & Bingley announced losses of £8million for the first four months of 2008. Rumours are circulating that Citigroup and UBS were not aware of such losses at the time of the initial rights issue and had consequently threatened to pull out, forcing Bradford & Bingley to turn to TPG in desperation.

Rod Kent, who has just been appointed group executive chairman as a result of Steven Crashaw's sudden illness, said: "The last few weeks have been challenging for Bradford & Bingley, and this is a disappointing trading update reflecting a more difficult market environment."

In attempts to reassure investors, he added: "I understand shareholders' disappointment. Nevertheless, with a strengthened capital base and the skills that TPG will bring I am sure we can develop the business to exploit the opportunities available in our markets in the medium term."